Monday, September 26, 2005

Future crude oil production: optimistic and pessimistic views

In a rigorous new field-by-field, bottom-up analysis of the world’s capability to produce hydrocarbon liquids, Worldwide Liquids Capacity Outlook To 2010— Tight Supply Or Excess Of Riches, CERA indicates that worldwide capacity could rise by as much as 16 mbd between 2004 and 2010

CAMBRIDGE, Mass., June 21, 2005 – Despite current fears that oil will soon “run out,” global oil production capacity is actually set to increase dramatically over the rest of this decade, according to a new [private] report by Cambridge Energy Research Associates (CERA). As a result, supply could exceed demand by as much as 6 to 7.5 million barrels per day (mbd) later in the decade, a marked contrast to the razor-sharp balance between strong demand growth and tight supply that is currently reflected in high oil prices hovering around $60 a barrel.In a rigorous new field-by-field, bottom-up analysis of the world’s capability to produce hydrocarbon liquids, Worldwide Liquids Capacity Outlook To 2010— Tight Supply Or Excess Of Riches, CERA indicates that worldwide capacity could rise by as much as 16 mbd between 2004 and 2010 -- a 20 percent increase over the period. This significant expansion in liquids productive capacity will meet volatile and expanding demand later in this decade and beyond, according to the CERA report. “We expect supply to outpace demand growth in the next few years, which would take the pressure off prices around 2007–08 or thereafter and even lead to a period of price weakness,” observe the report’s authors, Peter M. Jackson, CERA’s Director of Oil Industry Activity and Robert W. Esser, CERA’s Director, Global Oil and Gas Resources. “Following development of the current worldwide inventory of major discoveries, we also foresee far more capacity expansion in the medium term from field upgrades than through exploration.”. “Today’s high prices are the result of an exceedingly tight and precarious supply-demand balance,” says Daniel Yergin, CERA Chairman. “Yet significant new capacity will be coming on stream – much of it launched a few years ago on price assumptions much lower than today’s market prices. The addition of that new capacity is what is required to improve the supply demand balance.” The full report will be presented and discussed in a special forum next week at CERA’s “East Meet West” International Energy Conference in Istanbul, Turkey, June 28-30. Unconventional Oils Jackson and Esser argue that “unconventional” oil will play a much larger role in the growth of supply than is currently recognized. These unconventional oils include condensates, natural gas liquids (NGLs), extra heavy oils (such as Canadian oil sands), and the ultra-deepwater (greater than 2,500 feet deep). By 2020, they could be almost 35 percent of supply. The CERA analysis indicates the pace of new major projects coming onstream worldwide will be sustained to 2010, with fewer giant projects going forward after that. “We have some concerns as to whether the deepwater and Russian “miracles” can continue to shore up non-OPEC liquids capacity expansion past 2010, when non-OPEC capacity growth will start to slow significantly,” say Jackson and Esser. “This rate of growth will be closely related to the emergence of new deepwater plays in existing and new areas, and also the rate at which the huge potential of Russia is unlocked. However, OPEC can continue recent rates of capacity expansion after this time.” “The main risks to our Supply Expansion scenario,” comments Yergin, “are above ground, not below ground – changes in the political and operating climate that could delay expansion.” In CERA’s downside “Delay and Disruption” scenario, the lower boundary in the analysis, capacity increases by 11.5 million barrels between 2004 and 2010. Peak or Undulating Plateau? The CERA analysis rejects the current fear that a near-term “peak” in world oil production and a coming exhaustion of supply are near. The report indicates that the “inflexion” point will come in the third or fourth decade of this century. Moreover, rather than a “peak,” it will be an “undulating plateau” that will continue for several decades. “In the years ahead, the scale of the business will continue to grow, as long-term, multi-billion dollar projects become more and more common – and more and more necessary, and an expanding effort is put into upgrading existing fields,” say Jackson and Esser. “One of the most biggest challenges will be to find the giant projects of the next decade, which will put great pressure on the search for high-quality, significant opportunities that in themselves meet the criteria of ‘big’.” Primary findings of the report include:OPEC Outlook – Total OPEC liquids capacity will expand significantly to 45.6 mbd in 2010 from 36.8 in 2004, with the proportion of condensates and NGLs rising to almost 18% of total capacity. Post-2010, OPEC has the hydrocarbon resources to continue expanding capacity at a slightly lower rate than the current decade’s 10.9 mbd growth. CERA believes OPEC will accelerate key projects in anticipation of a non-OPEC slowdown in capacity growth.Non-OPEC Outlook – Non-OPEC capacity will expand rapidly for the balance of the decade, adding 7.5 mbd to reach 55.8 mbd by 2010, with the increase dominated by contributions from Russia, the Caspian, Brazil, Angola and Canada. Beyond 2010, the rate of increase for non-OPEC liquids capacity is expected to slow dramatically to as low as 2 mbd by 2020. A step change would be needed in investment in exploration to stimulate more rapid expansion of non-OPEC liquids capacity.Specific countries – The report expects Saudi Arabia’s liquids productive capacity to rise by 1.5 to 2.0 mbd by 2010, to about 12.5 mbd, and observes that the country is still “underexplored.” It describes “reduced near-term expectations” for output in Russia, reflecting “the slow development of the export infrastructure and political uncertainty.” Capacity in the United States will decline from 7.55 in 2005 to 7.15 in 2010 – about a 5% percent decline.Supply sources -- A large number of major, new projects are approved and under development or looking highly likely to proceed, especially in the deep water, the Caspian, in extra heavy oil, and gas-related liquids from the gas boom. There are approximately 20–30 new major (greater than 75,000 barrels per day) projects coming onstream every year to 2010, and these are contributing between 3 and 4 mbd of new liquids capacity annually.What Kind of Capacity? – Of the 17.7mbd of gross capacity expected to be added to the world production stream between 2005 and 2010, more than half (10 mbd) will be light liquids and almost 20% (3.2 mbd) will be heavy. Much of the impetus for high oil prices and increasing spreads between WTI and heavy crude in 2004 was that there was there was no ready refining capacity to absorb the growing quantities of heavy, sour oil. Given the time needed to build additional refinery capacity, this will not change in the short to medium term and, as Saudi Arabia, Venezuela and Canada step-up heavier crude production in the longer term, the prospect of wider light-heavy spreads will encourage either investment in refinery conversion capacity or upgrading capacity nearer the wellhead.Unconventional liquids – Condensates, natural gas liquids (NGLs), extra heavy oils, and the ultra-deepwater (greater than 2,500 feet deep) will be the key component of the increase to 101.5mbd in 2010 when they will represent 30% of the total – compared with 22% today and less than 10% in 1990. Also by 2020 unconventional liquids will account for 34% of the total liquids capacity in 2020, compared with 22% percent today and less than 10% in 1990.Supply balance -- The balance of supply over demand has the potential to expand significantly over the next five years, and this could drive oil prices to the downside. If demand growth averages a relatively strong 2.2% through 2010, prices could weaken from recent record highs and slip well below $40/bbl as 2007-08 nears. If demand growth were notably weaker, a steeper price fall would be conceivable; however such a fall would likely slow capacity expansion and bring a market rebalance within two to three years.Peak or Plateau? -- CERA believes there will be no “peak oil” problem before 2020. However, sometime beyond 2020 an inflexion of sorts will occur, but it will not be followed by a precipitous decline in productive capacity At this time CERA believes that the worldwide capacity profile will track an “undulating plateau” for a number of decades before starting to decline more slowly than might be thought today, as a step change in investment occurs and new technology is pumped into exploration, field upgrades, stranded gas, and heavy oil projects in a manner quite unlike any other period in the history of the oil industry.Methodology -- CERA’s methodology “for liquids production capacity forecasting adopts a bottom-up approach in which the overall profile is the sum of the outlooks for fields in production, fields under development, and fields under appraisal, all of which is built into a national outlook. A component of capacity from future exploration investment, yet-to-find, is also included. For some countries, we include data from every producing field and upcoming major project, while in others the data is less comprehensive.”

Cambridge Energy Research Associates (CERA), a subsidiary of IHS Inc., is a leading provider of independent analysis to energy and power companies, consumers, financial institutions, governments, and technology companies. CERA (www.cera.com) delivers strategic knowledge and independent analysis on energy markets, geopolitics, industry trends, and strategy. CERA is based in Cambridge, Massachusetts, and has offices in Beijing; Calgary; Mexico City; Moscow; Oakland, California; Oslo; Paris; Rio de Janiero; and Washington, DC.

With a combined 70 years of experience in the oil fields, report authors Robert Esser and Peter Jackson bring extensive knowledge of petroleum geology to this study. Trained as geologists, both spent many years in the oil industry, analyzing projects, drilling oil wells, and conducting geological studies before coming to CERA.

Robert W. Esser, Senior Consultant and Director, Global Oil and Gas ResourcesRobert W. Esser, CERA Senior Consultant and Director, Global Oil and Gas Resources, is a distinguished authority on worldwide oil and gas productive capacity, and on global exploration and producing activity. His track record predicting market trends in oil and natural gas is recognized as one of the most accurate in the industry. Mr. Esser's expertise encompasses oil and gas exploration and worldwide producing activity, prospects for existing production, the significance of recent discoveries, and the pace of future discoveries and their influence on future productive capacity. He was formerly the Mobil Corporation expert responsible for energy resource and oil and gas supplies projections, used by Mobil both for crude price forecasts and as a basis for the exploration and production strategy. Mr. Esser is a member of the American Association of Petroleum Geologists (AAPG) and a trustee of the AAPG Foundation. He is the author of numerous CERA reports and analyses of global exploration and production for oil and gas, including recent reports on North American natural gas productive capacity with emphasis on the Gulf of Mexico and US Lower 48. He holds a BS from Yale University and an MS in Geology from Stanford University.

Peter M. Jackson, Director, Oil Industry ActivityPeter M. Jackson, CERA Director, Oil Industry Activity, has global experience in the upstream oil industry, including a strong technical background in exploration and development (E&P) projects, new business venture management, acquisitions, and strategic E&P investments. He is also an expert in management development in the oil industry, with an emphasis on change management under the oil industry’s new corporate profile of increasing technological sophistication. Since joining CERA Dr. Jackson has developed a detailed insight of liquid supply and reserve issues with particular focus on the OPEC countries.Dr. Jackson has held senior positions overseeing E&P activity in Northwest Europe, Italy, the Gulf of Mexico, and Southeast Asia. Before joining CERA, Dr. Jackson spent 17 years with Enterprise Oil. He was most recently Head of Management Development, responsible for corporate strategic imperatives and performance, developing leadership policies and process with over 150 senior managers, focusing on innovation and change management. Previously he was President, and Vice President of Exploration and Production, based in Houston, where he managed the company’s Gulf of Mexico acreage, including acquisitions and E&P. Earlier he was Chief Geologist and launched a new risk assessment and prospect analyses process, among other technical research and development initiatives. He was also Exploration Manager in Italy; Team Leader, Operated Developments, in the North Sea; and Senior Geologist, International New Ventures, focusing extensively on Southeast Asia. He formerly worked for BRITOIL in the North Sea, Northwest Europe, and in Indonesia. Dr. Jackson holds a BSc with honors from St. Andrews University and a PhD in Geology from Edinburgh University. Methodology

CERA’s standard methodology for liquids production capacity forecasting adopts a bottom-up approach in which the overall profile is the sum of outlooks for fields in production (FIP), fields under development (FUD), and fields under appraisal (FUA) built into a country outlook. A component of capacity from future exploration investment, yet-to-find (YTF), is also included, and this requires a significant lead time to first production. For some countries, we include data for every producing field and upcoming major project, including depletion rates, while in others the data is less comprehensive. Even so, in most countries, knowledge of developments of the largest fields alone provides a reasonably accurate view of the overall outlook for productive capacity. CERA uses data from many sources, including IHS Energy’s production database, which is the most reliable source of exploration and production information available.

CERA's Worldwide Liquids Capacity Outlook To 2010 -- Tight Supply Or Excess Of Riches predicts we humans will have 6 to 7.5 million barrels per day of excess capacity and we can expect an extended period of lower prices – perhaps by 2007. Petroleum production will be expanding faster than demand over the next 5 years. The report has tabulated 20 to 30 new projects with a capacity of over 75,000 barrels per day that will become available in each and every year until 2010. By then, worldwide production could increase by up to 16 million Bbl/day. However, most of the increased production will come from reworking existing fields, rather than new oil discoveries, and after 2010 the majority of new production will come from OPEC.

CERA doesn't believe in peak oil, at least not before 2010, and probably not before 2020. The report indicates that the "inflexion" point will come between 2030 and 2040. Moreover, rather than a "peak," it will be an "undulating plateau" that will continue for several decades. OPEC, the company claims, will be able to add 8.8 Mbl/day by 2010 and can continue its expansion – at a somewhat slower rate – beyond 2010. Non-OPEC production will experience a robust increase through 2010, and then slow significantly thereafter. Unconventional oil production will increase throughout this period, supplying almost 35 percent of the world's oil by 2020.

Then Yergin adds a sobering caveat: "The main risks to our Supply Expansion scenario are above ground, not below ground – changes in the political and operating climate that could delay expansion." In CERA’s downside "Delay and Disruption" scenario, capacity increases by only 11.5 million barrels between 2004 and 2010.Whoops.What is the implication? Will delayed projects and disruptions in the supply chain lead to temporary shortages before "Peak Oil" hits us? Perhaps we should review CERA's implied assumptions. They are, after all, the basis of CERA's optimistic conclusions.AssumptionsUnderlying every data analysis and series of conclusions is a collection of assumptions. In order to avoid oil shortages, temporary or longer term, for example, we have to make multiple assumptions about our ability to find, produce, transport, refine and distribute oil (the supply chain). At some point in our analysis, these assumptions have to be tested for credibility.Will they hold up under careful examination?

Assumption # 1. Peace in Iraq.A key element for any increase in Middle East oil production has to be Iraq. Estimates of found oil range from 46 to 112 Bbl, with another 100 Bbl a strong "maybe it's there". If there is no peace in Iraq, or if Iraq succumbs to the policies of an Islamic Theocracy, then Iraq's contributions to OPEC's annual production volumes will never reach the levels envisioned by the International Energy Agency (IEA). If Iraq's government is stable, and favors a high production policy, then world oil supplies will be a little closer to the IEA's projections through 2020.The future of Iraq rests on the outcome of an escalating cultural conflict between Islamist and Western values. Until that gets resolved, we can only guess at the future of Iraqi oil production.

Assumption # 2. Political and labor stability.Any optimistic analysis of oil production must assume there will be relative political and labor stability in the Middle East, North West Africa, South America, and Caspian regions. As recent events have shown, however, these areas are prone to conflict that disrupts the flow of oil. Up until 2004, temporary disruptions in one region could usually be replaced by production from other resources. Going forward, there may not be sufficient spare capacity to cover lost production from one or more regions. As a result, sporadic shortages are a possible reality.

Assumption # 3. Islamist terrorist activity will not disrupt the supply chain.Islamist terrorist activity will continue to disrupt the supply chain from time to time. The land locked Caspian, for example, could be the source of 60 Bbl of oil. Maybe more. And these wells are coming on-line. But most of the oil in this region must pass through a very long pipeline in order to reach the consumer. History suggests political volatility in this region will eventually disrupt supply chain operations. Perhaps for multiple years.Islamist terrorist activity, whether sporadic or sustained, will continue to be a potential threat to the flow of oil, not only in the nations of the Caspian, the Middle East, and North West Africa, but also within the borders of consuming nations.

Assumption # 4. The proven reserves claimed by OPEC actually exist.It is unlikely the proven reserves claimed by OPEC actually exist. Many believe they are a fabrication of the quota justifications that occurred in the 1980s. Furthermore, the claim that "Proven" reserves are increasing needs to be examined because in a sense we are merely talking about definitions. Words. As the price of oil increases, it becomes economically feasible to spend more money on production. Make sense? So the reserves that could not be classified as "Proven" at $26.00 per barrel become damn attractive if the price for a barrel goes to $55.00. There isn't any more oil. It's just that "Probable" oil reserves become "Proven" oil reserves as the price of oil increases because we can afford to spend more money on recovery. All we did was reclassify the definition of the oil we already have in the ground. No one found any more oil. Not a drop.

Assumption # 5. There will not be a substantial increase in reserve depletion rates.Only 4 "super-giant" oilfields have been found outside the Middle East since 1960 (in Russia, China, Alaska and Mexico) and all of these - except China - are now in decline. Oil production is in decline in 33 of the 48 largest oil producing nations. Using improved technology often increases the rate of depletion. New finds tend to be smaller and deplete faster. Worldwide, estimated rates of depletion run as high as 8 percent per year.

Assumption # 6. All proven and potential reserves will be produced on schedule.This assumption only works if hundreds of exploration and drilling operations in multiple countries and oceans under a wide variety of operating conditions and technical challenges occur on a schedule that coincides with the IEA's demand projections. Everything has to work. No significant political or labor conflicts. No ideological confrontation. No financing or management Snafus. Cooperative weather. And a reasonably predictable growth in market demand so consumption can equal production (with a little to spare).

Assumption # 7. Middle Eastern production capacity will continually increase, reaching ~ 29 Mbl/d by 2010 and at least 43 Mbl/d by 2020.Middle Eastern production capacity will increase. The goal of 29 Mbl/day by 2010, however, is ambitious, and few believe OAPEC will be able to deliver 43 to 50 Mbl/day by 2020. Exploration and production will be challenged by Islamist opposition in Iran, Iraq and Saudi Arabia (and perhaps elsewhere). There is a long list of reserve and technical restraints in this region. We must also understand that the creation of a large surplus capacity is NOT in OAPEC's selfish best interest. Faced with enormous population growth and big welfare bills, every Middle Eastern government knows that when the oil is gone, their regime is in trouble. Leaders may determine they can actually make more money, and enjoy greater personal longevity, - by pumping less.

Assumption # 8. The EROEI of all oil production exceeds 1.EROEI.Energy Returned On Energy Invested means that the energy derived from exploration, production, refining, and transportation exceeds the energy consumed for these activities. We tend to forget. If the EROEI of any energy resource is 1 or less, then doing that activity no longer provides a net addition to our stockpile of energy.The average EROEI of world oil production has been declining. I read somewhere that before 1950 the EROEI for oil was more than 100:1. By the 1970s it had dropped to 30:1, and by 2005 the average EROEI on new production had fallen to 10:1. As we go for oil in increasingly difficult environments (deep under the ocean, open pit mining, etc.) the EROEI will decline further. We have to face the facts. Just because there is oil in the ground does not mean it is practical to extract. Every well has its cost in money AND energy. At some point the EROEI for every well will fall to less than 1, making oil from that well an impractical resource for energy.

Assumption # 9. Unconventional oil production will increase throughout this period, supplying almost 35 percent of the world's oil by 2020.We have inherited up to 7 Tbls of oil trapped in sand or shale formations. But that is a misleading number. Only 5 Tbl are worth mining and of that number, perhaps 25 percent will be feasible to produce because production cost and EROEI factors make extensive mining impractical. Given the production problems associated with squeezing oil from rock and sand, the rate of production will be painfully slow. A goal of 15 to 18 Mbl per day by 2020 from recoverable reserves of 620 to 910 Bbl appears reasonable.We expect to find oil beneath polar ice and permafrost in the Artic. Although total recoverable oil is something of a mystery at this point, figure 55 to 100 Bbl (maybe more). Unfortunately, exploration, production and transportation in this frigid environment are no fun. And costly. So don't expect polar oil to yield enough production to avoid oil shortages.We are learning how to drill in the deep waters (over 2,500 meters) of the ocean. There is oil in the Gulf of Mexico, along the coastal shelves of South America and Africa, and a number of other locations around the world. Recovery takes time, is a technical and operations challenge, and is very costly. Add another 80 to 120 Bbl of oil to the reserves we will ultimately recover.In addition, one can expect we humans will pump out a limited amount of heavy oil and oil from coal bed methane deposits.If we add up all of these resources, we probably have up to 1.1 Tbl of unconventional oil to play with over the next 20 years. But our estimate of annual production is much lower. Technical, weather, geography, political, environmental, cost and EROEI factors will limit total production to around 100 Bbl from 2005 to 2020. This estimate – by the way - mirrors the Energy Outlook projections made by ExxonMobile in its "World Liquids Production Outlook" presentation.To these numbers we need to add, as CERA does, Natural Gas Liquids (NGL) and condensates as unconventional oil. If we add all of these forms of unconventional oil together, CERA's projections appear reasonable.

Assumption # 10. There is sufficient infrastructure to support a vigorous increase in production.Oil is a cyclical business. Prices bounce up and down because there is almost always a mismatch between supply and demand. For a number of reasons, exploration and production investments have not kept up with projected increases in demand. That investment deficit has left us with insufficient spare production capacity to sustain the world's projected economic growth. Even if we have ample reserves in the ground, there is no guarantee enough oil wells will be developed in time to avoid sharply higher prices and possible shortages. We don't have enough oil rigs, tankers, petroleum engineers, or refinery capacity. The problem is systemic and will take several years to resolve.

Assumption # 11. Non-Muslim engineers, technicians and laborers will be permitted to work in the fields of the Middle East, North West Africa, and countries adjacent to the Caspian basin.Non-Muslim engineers, technicians and laborers will be permitted to work in the fields of the Middle East, North West Africa, and countries adjacent to the Caspian basin. However, Islamist activity and local sociopolitical conflict could jeopardize personnel security. Iran's new government, for example, has made it clear that non-Muslim foreigners are not welcome to bid, or work, in Iran's oil patch.

Assumption # 12. There is sufficient capital to fund the proposed supply chain activities.There is sufficient capital to fund all of the proposed supply chain activities if one assumes the credit markets will not be overly stressed by other economic events, such as a collapse of the market for Mortgage Backed Securities or a massive default on the loans outstanding to Hedge Funds.

Assumption # 13.There will be a dramatic decrease in the growth rate of oil consumption.Emerging nations, like China and India, will increase their per-capita and total consumption of oil. Although I fully expect a decrease in the growth rate of oil consumption will occur, it will - as I point out in "Oil, Jihad and Destiny" – be due to recessive factors. Production will equal consumption only if there is a destruction of natural demand or if shortages force reduced consumption. In either case, the rate of growth decreases.

Assumption # 14. As a result of over production, we will be awash in oil.It is more likely that Saudi Arabia will continue to act as a swing producer, restricting its production in order to encourage higher prices. Indeed, Saudi Aramco engineers may welcome the opportunity to take key wells off-line for service if the world appears to be "awash" in oil.

Assumption # 15. The price of oil will decline.It is highly likely that the price of oil will fall below $40.00 per barrel. The history of the oil industry is characterized by volatile changes in price because of the chronic imbalance between supply and demand. But a temporary decline in price is no basis for making either public policy or personal choice decisions. For every short term decline, expect a subsequent increase in the price. The long term trend for all petroleum prices is UP.

Assumption # 16. Resource nationalism will not disrupt world oil markets.If there is so much oil available for production, why are we drilling new wells in deep water? They are very expensive, challenge our best technology, pose an environmental hazard, and are at the mercy of the sea. Why don't we just drill on land?Because the North Sea fields are declining, West Africa is in turmoil, Venezuela is politically unstable, Iraq is a crap shoot, Saudi Arabia is vulnerable to revolution, and Putin plans to use Russia's petroleum as a political weapon. China is buying up every drop it can find. The Italians have pointed out that the geographical flows of crude oil favor refineries on the Mediterranean coast over refineries located in North America.Hmmmm. Are we witnessing an increase in resource nationalism?The industrialized nations have no choice. Oil shortages will create a growing cadre of unemployed citizens and declining GDP. Political survival means drilling in every plausible location on this planet and competing with other nations for the oil that is left. The race is on.

Assumption # 17. Technology will save us.Optimists claim that continuing improvements in computer, exploration, and drilling technology will sharply increase oil production. In truth, the oil industry has been continually improving upstream exploration and production technology since the birth of the oil age. Engineers are currently hard at work on improvements for drilling fluids, drill bits, directional drilling, multilateral drilling, sensors, GPS, drill casing materials, CO2 injection, reservoir modeling software, and a thousand other opportunities to increase recovery operations. The point is, there is no magic solution that will suddenly increase our reserves. Almost every technical solution has already been explored. Yes. New technologies will increase production. But the net impact is more likely to be incremental – not revolutionary.For example, much has been made about the use of CO2 injection to increase recoverable reserves. Granted. It is possible to recover 60 percent (or more) of the oil that in the ground as we humans struggle to liberate every drop of oil from existing reservoirs. But many of our older oil formations have already been flushed with fluids and chemicals in an effort to increase production. Consequently, the use of newer technology will not always yield dramatic improvements in mature field recovery. New finds, on the other hand, provide an opportunity to secure higher increases than older formations. Recovery rates will also be higher and faster for light oils than for heavier crude. And finally, it may - or may not - be economical to use newer technology, such as CO2 injection, on some wells. What does this all mean? Over a period of years, average world recovery rates are more likely to be in the 45 to 50 percent range.And there is a downside to the application of reserve enhancement technology. If we increase the rate at which we drain our available reserves, - depletion happens sooner.

Assumption # 18. Higher prices will encourage the production of more oil.The classic economist assumes higher prices will stimulate greater production. And it usually works. But our hydrocarbon resources are finite. New production involves a complex series of challenges that can take several years to overcome. In order to continue along the growth curve of projected demand through 2020, we humans will have to consume most of our "Proven" reserves, convert most of our "Probable" reserves into "Proven" reserves, and maximize a phenomenon peculiar to the petroleum industry called "Reserve Growth". Oil prices will have to increase in order to justify the economics of this sequence. Total oil production, however, will continue to be limited by the factors discussed above in Assumptions 1 – 17.

PART TWO: Reality Check... What Other Experts Say: does not appear to be yet available.